there will be a lot of attention, to the whole buzz word. what's good and what's bad out there now? >> well, f-22. >> first of all, just from the purely no-fly zone point of view, there's no reason to bomb libya. what they have is a joke. if you wanted to fly f-16s tomorrow over libya, whey that have, and what few mislittle you could duck so easily, it wouldn't be funny. :

problem of creating the no-fly zone when in fact it is ludicrous. i'm totally opposed to doing it

either way but it doesn't have to be the kind of a cataclysmic event that the huge acs has turned them into. >> we only have a few more minutes left side of to get a couple of questions >> we know secretary gates is going to retire later this year. >> can you ask people to identify themselves? >> push ulin grossman. we know 63 gates is when to retire later this year and i'm wondering what thoughts you have about the kind of background you would seek in the next secretary as it pertains to the issues you are discussing. who is out there? you don't have to name names. saxby to [laughter] at least in terms of background. >> first and foremost, you have your brothers which you won't because the president will come to office a wing a lot to a lot of contractors assuming he didn't know anything and he

could choose his the first thing he has more than anything else. i only worked for one secretary defense that had a lot of guts and other flaws and the was the secretary mcnamara but he wasn't afraid firing generals and admirals, and that's seen if you are going to be a good circuit to the defense you have to not be afraid of the four stars. >> is their anything else you want to add to that? what do but look for for the next secretary? >> i don't think you need someone who is necessarily that skilled in defense because those people are contaminated. is it ms. grossman? [laughter] >> i think we'll need is someone who's demonstrated their ability to run a large organization and not a financial manager type, but a person who comes out of the production of a major production company but who has the characteristics like air and

is talking about. [inaudible] is an acquittal of that money which is not related to this problem by the way. >> the last question, go ahead. >> i was wondering what you folks think of the rise of the unmanned systems not just aircraft, but submarines and the drawing board and talking about making deep strike bomber optional the unmanned, whatever that means. >> what kind of impact you think is going to have? >> we have no idea what the burden is that we are taking on and we operate the systems. when i moved into the job we flunked and of course i got so the rate for that. i had darlene on my --

[laughter] calling me -- yeah. before she went to jail. [laughter] and there was a task force that went to afghanistan shortly thereafter headed by the general larry welch who came back and i said you guys are absolutely right. this is not reliable. i think they solved of the support burden of those operating in the systems like that. i think in the and it is cheaper to operate the manned aircraft. you know, now maybe it's a little bit different with high altitude long endurance stuff not that i'm saying the -- >> just a fundamental question about the effectiveness we don't

know what could they are doing because the intelligence is so bad it and they are so dependent upon sensors as opposed to people on the ground to tell you what is happening. we have no idea what effect they are having. >> what about the danger -- >> we are so concerned about losing her their force and could care less about the guy on the ground. is the 92 >> putting tremendous danger from the very systems and from its ineffectiveness. the systems can't do close support. they can't respond to the guide that is being ambushed in a narrow valley. this is pure and old fashioned bombing mentality. this is like world war ii strategic bombing is what is behind the drones. >> and a level of assassination. >> i would like to make a comment.

>> john reid we all work closely with him and he had a great saying that comes the part of your questions. machines don't fight wars, people do and they use their mind. and you are talking about a war machines to fight the wars and people don't and they don't use their mind. >> on that note i think we want to speak greek heroes both for the troops and for the taxpayers. you spend your lives on this work and i won the end and let the audience to. [applause] >> you can download a pds of version of the pentagon labyrinth for free for the center of defense information website. go to cdi.org. coming up next, booktv

presents "after words," an hour-long program will be invited guest hosts to interview authors. acclaim economist dambisa moyo discusses her latest book, "how the west was lost 50 years of economic folly and the storch leases that lie ahead." the best-selling author argues that the flood of economic decisions made by western government have resulted in the skills of economic growth being tipped in favor of what she calls "the emerging world. she talks with libertarian economist dan mitchell. the >> host: my name is to dan mitchell at the cato institute and we are here to talk with dambisa moyo, adis on author about her new book, "how the west was lost." welcome to the program. let's jump right in. for basic premise, the west is being overtaken by the east. give us the mashaal explanation what it's about.

>> guest: it's interesting because this is a bizarre time in the society. with almost upset with what is going on in the east and what's going on in china and other places, and of course it is incredibly fascinating. but my book is really about the errors that have been made here in the united states and in europe. there is a homegrown problems are not policy, and it has absolutely nothing to do with china. things like education, the structural problems like infrastructure, things like the energy policy that don't have anything to do with china and really are essentials to get right to make sure the u.s. and european countries are on the right track. >> host: is almost like there's a couple of different books in one book. there is your story of the decline of the west. the rise of the east, and i guess the basic premise is that the lines are going to cross. >> you can argue that there is an absolute part talking about the west and its isolation and with the issues are going on there and of course we live in an easing time when china and the other emerging economies have done the unthinkable moving

these people of poverty so it is going to be in the year relevant question as well which is what i have done in the book. >> let's start by talking about what is going on in the west. >> guest: sure. i think it's important that in terms of the context of my work i talked about the unintended consequences, things that seemingly undersurface from the good intention but actually yield bad outcomes and what i've done in this book is to focus on the three key ingredients that economists focus on as the drivers of economic growth and those are capital which is basically money. lieber, which is basically the work force and then finally productivity, how efficiently using this stuff, and what i am arguing here is we need to provide a catalog of this policy that has been instituted in the united states and across europe over the past 50 years that has led to the erosion of these key ingredients that drive to economic growth and simply to get into the more detail on this but to give you an example, the idea of housing for all, housing policy for all which has been a

mainstay of american policy both for the republicans and democrats, on paper it sounds like a great idea we want everybody to have a shelter over their heads but in principle, the manner in which an executor's has led clearly to a situation we've had dubbed crisis, the idea of cutting interest rates historically low, the idea of having its policies of the city and guarantees are clearly induced the eight years that have led to the sub primm crisis. >> host: when you talk about what was done wrong in america but also other western nations as well, part of it is that we have moved for today and consumed, we go for the free lunch. the letter read on that. >> guest: i think what we are also facing right now in places like the united states is the competition over the sort of test between the current generation and the future generations. we have to decide whether there are going to be sacrifices and to what i'm arguing in the book. sacrifices for people to do so that the united states tomorrow can remain a preeminent economic

power. clearly there were promises were made and intentions these are unsustainably this would be impossible to fulfill the promises and so the question then becomes how much of a sacrifice people are willing to meet today in the united states to make sure that tomorrow we can have educated population and these infrastructures and so one. >> host: what happens if we don't make the sacrifice because this that is your warning in the book is we on this wrong path and because they're seems to be this short-term attitude. >> guest: the main problem of the consumption as we know both the public and the government level and the individual level in this country and the europe has been financed by debt. and the concerns of that are unsustainable if the debt has been used to finance investments for its simple we probably wouldn't be sitting here because i think there would be a lot of productive investments you might have seen come out of that but we have a very different

situation. so what would happen? in many places europe as a harbinger of all of the things that could happen. these are unsustainable budgets and often need to bailout. i was just in california. serious concerns of the infrastructure there but also very fundamental on their budget deficits they have so low -- those types of things can put a lot of stress on the economy and that is very much where you are hitting if you don't follow the fiscal problems. >> host: so in other words, in your book if we don't fix things in the united states and other places as well greece is our future? >> guest: it's evident people perhaps don't appreciate also coming from a different background, the fact of the matter is you harding increases in the inequality, people will be frustrated that they have to work longer than they had perhaps anticipated. the government is simply not going to be a will to continue to plan of the programs and that

leads to the underlying and also leads to have many more labor disputes. you have issues around the government ability to finance things like infrastructure, education, energy policy, and that is where. >> host: how much of this is demographic? is it just a result of the big baby boom generation retiring and a onetime spite in cost for an elderly population or is their something more permanent and systemic and our troubles? >> guest: i think there's a lot of things that are demographically linked. clearly even the property boom, the pricing is clearly supported by baby boomers who are willing to pay for housing. but obviously looking ahead issues around pensions and health care are strongly linked to the issues of the demographics but i think the systemic issues are flowing through the u.s. economy, things like education. the fact that the united states has gone from being number one

in the college graduates to be number 12 in one generation is incredibly problematic for america to be able to compete over the long term. if you look at the oecd, the organization of economic cooperation and development studies, they have a study called piece of studies. if you look at the performance in the mathematics and science and reading, they actually slid from being in the top one to three down to being in the 20's and in the high 20s. that is problematic. especially for america's competitiveness. the fact the united states 30 to 50 million people out of work in the manufacturing sector when we know these people are not competitive globally on the cost basis again it is not something that is necessarily linked to the demographics that is about the competitiveness and that is where this comes from. >> host: you talk about pensions there are many pieces to that. there is the federal government, social security program, there are underfunded pensions in the

private sector and then of course, some of the debates in the u.s. state showed under funding the pension promises to the state and local government workers, do you distinguish between those three different types? >> guest: well i have written a lot about this providing that they are all overarching umbrella of the tensions is the promise is unsustainable. and it's called them options that were just not going to be able to pay. we have already seen in the private sector of the whole industries that have basically it bankruptcy because of the pension problem, whether the airline sector, the field sector or the office sector we have already seen what the implications of that can be. the stifel, california, a classic example. they have furloughs' now which people are forced not to go to work the was the government doesn't -- the state doesn't want people to accrue additional liabilities. and clearly, this obviously feeds into this federal level. so i do not distinguish, and in course with the numbers look

like you can't look with the overarching liabilities are. the main thesis of the sort of thread running through these are promises that are simply not to be able to be paid. >> host: we are talking about promises that are not able to be paid, at some point, if you are california, when he become greece in the sense when do investors decide we don't trust california anymore. we aren't quinta by their bond. you can still, california can still issue debt at a reasonably low interest rate. the we are seeing greece has already reached the point they had to get a bailout, portugal is on the end where the investors are demanding very high interest rates because they buy portuguese. when does that happen to california or illinois and when does it happen to the federal government? >> guest: i think that the one thing i'm constantly reminded of his politics tend to bail out these situations and all the way it is a state it doesn't stand alone in the sense it is the united states of america they have a common currency implication of far more reaching than just california having

problems of itself and the federal government wouldn't have missed that as a point. so, whether or not california would get a bailout, i am certain somebody will come to the rescue, but that sort of doesn't preclude the more underlining issue which is if the interest rates start to rise which we are already seeing between the timber and now, the tenure interest rate in the united states has gone up by 100 basis points with a lot of pressure on debt and interest payments so those pressures tend to force not just states but also the government situation where they are not able to meet payments and they have to make trade-offs with public spending for example. and i think we are seeing that now. the fact you are talking about illinois and ohio, these pressures you are seeing we see the layoffs and teachers in new york and other places across the united states, those pressures will actually escalate if you cannot solve your interest rate problem and the fact you do have

to pay that money in the environment where interest rates are moving up. >> host: when you are saying is that despite what we are seeing now in wisconsin that the government in plenty union and the the state legislature and governor that's going to be repeated all across america. >> guest: the specific issue is collective bargaining but it is reflective of a great problem in the united states which everybody knows that many of the states and the federal government is simply too indebted and has massive deficits and those together means something has to give. there is a lot of debate as we know about cutting spending. i fear that there will be much more happening on the side and i think it is problematic. the united states already in corporate taxes is 35%. this is much higher than the oecd average of 25%. in fact a friend of mine from denmark quite recently was quite surprised because in the market as we know the income tax of the

private level is much higher. 50, 60% tax. but at the corporate level, for corporate taxes to be lower in a place like scandinavium, denmark it's quite surprising. the united states is built on this idea of private sector, innovation and incentives and so it is i think it is really a symbol of how bad things have become the effect of the net is there is going to be a mix of tax rises plus spending cuts in order to get out of the situation. >> host: it is amazing. every single european which we think of as the high tax, they have in the west by significant margins more than ten percentage points. i want to go back to education. he pointed out the u.s. is usually at the top or near the top and now 31 oecd countries around 20. but we spend more than any country that and other than switzerland so it's not a question of resources.

we are just not allocating the resources intelligently. what's wrong with our education system? >> guest: it's not about quantity of money it's the education being delivered. and i have to say having spent a lot of time reading about the american education system but also listening to the experts, whose focus on the education system and who really reminds me a lot of the aid industry especially to africa and two things in particular. one, people are being rewarded for poor performance. it's quite clear if american education funds are going down and you have these policies getting rid of teachers regardless of the performance it seems to be a dislocation there. the other thing is we are a society essentially being ha held hostage. the trade unions, the teachers' unions specifically it's rather

problematic. our children's education and education proponents to compete and in the interest of the teachers' unions there's nothing inherently wrong with that there is something particularly wrong with the idea we are required to concede the education fund going down. but we are penalizing for people lack of delivery. >> host: is the problem structural though? talk about how the u.s. has tiger corporate tax rates which surprises people, but also in europe to find a lot more schools choice. in sweden it is the netherlands have substantial school choice and even germany has a lot of school choice. we only have a few tiny little progress in a few cities and states. is that the solution to be actually needed competitive malveaux with parents in charge of teachers? >> guest: you need parents more involved and the question becomes what can we do to make the government and parents more involved to make sure this

doesn't happen. i'm not too sure about whether it is boiling down to this idea of more choice or less choice because if you look at the education performance across europe, they are seeing a backslide certainly on the oecd standards to the rest of the world. if it were about twice you wouldn't have expected them to be with the united states sliding down. one of the things i do talk about in my work that possibly something worth thinking about is the idea of the transitional and very popular in mexico and brazil and being rolled out of the pilot program by mayor bloomberg is to do the right thing so your child goes to school 98% of the time and to get $100, you get immunized, immunized for a disease you get $100. now there's this discussion in europe whether or not people should start getting paid for their children's to be cut

children to study mathematics and science. it seems the european countries need for to continue to remain competitive obviously this is not what we expect. we need to start paying people to do the right thing. but given where the societies are it's everything seems to be on the table. it's quite fascinating of the transfers. it is plausible solution to the problem we are seeing now. >> host: dhaka the education of these other areas simply the fact that once the country's become rich degette please see? >> guest: i hope not. i actually don't subscribe to that at all. singapore last year was the fastest-growing economy on the planet. about 15% of growth of gdp growth and that is mind boggling for a country that is close to the western standards in the per capita income basis we should expect to see those levels of economic growth and economic growth if we believe what you

just said. so i don't think that it's that at all. the reason i wrote my book is because i really believe that perhaps a lot of americans don't understand what is the problems in the economy and you see a lot of them on television and in the press about the deficit and the massive debt, but i don't think it is a practical initiative people understand that this is really a fight for the soul of america. and not only for america, but for the world. there are going to be 9 billion people on the planet in 2015. we absolutely need to get it right. we need america to help solve the big problems around the resources and the lack of water and land and issues around energy that the united states is great. we are not going to read decouple to rely on the u.s. if you don't have the education. >> host: singapore being an example what are they doing right that the u.s. is doing wrong and actually what brought in that little that you talk of how the west was lost so presumably not all of the

western nations are the same, some of them are doing the wrong direction at a faster rate. what are some of the differences between the u.s., between europe, inside europe, why are those countries different than singapore or hong kong that seem to still have this vibrancy? >> first of all, nobody really knows how as economists we don't have a solnit solution for all the countries for sure, and i think it's again quite fascinating to look of the difference between britain and the united states addressing the financial crisis. it adopted a very fair approach towards the result of issues deficits. the united states has adopted a very different approach. it's become quite relaxed and as we know the monetary environment is good interest rates quite low and with europe and britain quite a different policy stances

and obviously we don't really know how that turns out. but going back to the fundamental framework and economists use, and by no means am i saying that this is the complete picture, but again, looking at the productivity you can see why these emerging economies are in the place. they have a lot of money and perhaps economists argue too much. in terms of labour they have great dynamics in terms of numbers of people and quality they are working hard on education to get to the skill of the standards of education. particularly mathematics which do matter and then in productivity places like china have the highest levels of productivity obviously because the real import technology but the have been able to do that in a very, very important ways, and these three things together are the foundations that we are

seeing there. and they clearly are very politically different environments as well where the government takes a much larger lead. i think that it's quite interesting to see the government actually does control the corporate environment, and they don't -- many of the countries don't have the democracy in the manner in which the united states has a space process. i think that the democracy is something we should all aspire to but it's clear you could argue some instances having elections all the time might reward the policies focusing on short-term things, policies as opposed to dealing with the bigger structural problems we know can undermine the economic growth. >> host: that was actually one of the things in your book that brought me to the wrong way. it was almost like the term argument that the chinese have it so much better because they don't have to worry about that business of democracy. the government can just decide something and implement the next day whereas especially in

america the separation of power, it takes a long time for something to happen but obviously even though the democracy is in perfect yes what winston churchill said the least worst of which -- >> guest: again, nobody is saying get rid of democracy. we are in the space process needs to think about how can we reword and incentivize penalize as necessary policy makers who don't focus on these long term structural issues. everybody knows whether republican, independent in this country every latinos we are moving the pension problems. massive concerns about the health care. serious issues about infrastructure. they aren't going to be suppressed the debt and deficit soared the question is how can we get around the table to get everybody to see the tax prices have to be made. and unfortunately policy makers haven't done a good job not just in the united states and europe as well of explaining to people with the sacrifices might look like and the policy have been

over the last decade. >> host: didn't to put your finger on the problem in the next election? >> guest: very rational. but look around america. the of space processes in some countries and they mean when you are elected as a president to have a longer term but it gives you a little bit more bandwidth to think about the structure problems and that is having elections. the baffling that and just had elections in the united states a few months ago in november and here we are already much of what is the discourse on television and the united states at the next elections next year. where do they have the bandwidth to focus on the problems that everybody acknowledges they, are there. infrastructure, education, energy efficiency without trying to paint what is their big thing which is the same power. >> host: i don't think this is something you dressed in the

book or maybe i forgot, the longer terms actually result in better policymaking. i get the feeling that if you are a poor country you are less likely to engage in the kind of short term over consumption when we see in some western countries but this comes back to the point when you get rich you get lazy and grew 1% a year because you are already in good shape. >> guest: i don't think -- perhaps the argument has credibility but there are a lot of people in the united states still hungry and for that group i think we should be worried. the responsibility is very clear the room of government is to provide the good regulatory environment without being a stranglehold. the response of government to provide public goods and things we benefit from that no one person wants to pay for some things like the infrastructure but it's also important for the

government to provide a policy environment that incentivizes people to do the right thing. i don't think an environment with the government becomes the major arbiter of capital and labor. it's a good environment. united states still continues to be the leader of innovation. i think the more that you put a stranglehold on the people and silicon valley and the technology is not a good thing. so when it is at 35%, given where the u.s. is right now i worry because i think to myself how are we going to solve these problems around the world if america may be overtime loss incentivized to decide to be more innovative when we need them to be right on board in those areas. >> host: you're saying we want to invent ways people to do the right thing is that an indictment of a high-tech the attacks welfare's it because if you have the high techs welfare state your punching the people who create with the high tax rate and you are rewarding people for becoming dependent on

government. and when i think of greece, sometimes i think of a simple terrible if you have to many people writing in the wagon, and not enough people pulling the wagon, guess what happens. the whole thing grinds to a halt which ends some sense what is happening there. >> guest: and i talk about this in the book for sure. look, the manner where the chips fall should be in the rule of the states really is a personal and by that i mean a national decision. there are countries that are like scandinavian countries that have been very successful with having some form of a social safety net, but at the same time encourage the private sector involvement. if unable to come and we talked about already to have got much slower corporate tax rates they are going to provide you with infrastructure of the public goods but you're going to be more of the income level. and that seems to work well with scandinavium. germany has a very well defined

and redefined welfare state with a small w. than in the united states but at the same time you have to figure out how to have a tax rate that works to help support the public goods but one that isn't so onerous where people actually in the global fisa why am i sitting in the united states paying 35% i can't do business in this environment and health care costs and all this i might as baltic my business elsewhere. so it is a fine balance here. my personal discussion in the book is i do think that the united states does run the risk of in the batvinis each region where there are too many people in the wagon, and i have to say that it's not just only that there's too many people like and there's a lot of people in the wagon who don't want to be. they would rather be out of the wagon, but unfortunately the environment isn't incentivizing them to do what you want to do. it is very problematic. >> host: i sometimes think of the welfare state where people get stock and become independent

and even though they want to climb the ladder the government policies are not very friendly. let me ask you of the differences between the welfare states because you mentioned scandinavian countries do it better. and that certainly seems to be the case if you look at the tension for instance in sweden the age at which you can retire is tied to the average life expectancy. so, you may very well be in the case 20 years from now you can access benefits until you get to be over 70, when as we read the stories about a greece different professions that have political power have the retirement age of 50 or 55. >> guest: or lower. [laughter] >> host: so, i am a good libertarian. this is a philosophical principle. but if you are going to have the big government, it certainly seems that sweden is much more of the model of how to do that than greece or italy. >> guest: and i would say look there is something to be said to the fact that in this round, the last round of the crisis sweden

has done better. they had their own financial crisis so they don't get off the hook that easily. but there is ultimately the government has a role for sure but you can get a bit carried away with that and i give another example from the book. i don't believe it is the responsibility of the government to pick and choose which asset class as individuals should put their money in so let's talk about this. there's many different classis, commodities, bonds, stocks, cash, property. but with the government has done is keep interest rates low over the last several decades. interest rates low, subsidies and guarantees, fannie mae and freddie mac that has induced people to take their money and putting it in the housing class. there's something inherently problematic with that and this idea of having these bloated dependency systems and the massive welfare systems as somebody who comes from africa i can see how damaging it can be for the whole continent of a

billion people, many people want to work, they want to be part of the global society and they don't have that privilege because of this whole culture of undermining and underwriting the large government providing money and a situation where if you had a bloated welfare state. my preference is i would prefer to live in a place like sweden and a place like increase and it's not surprising we're seeing all of the rises in the place like greece and we are not seeing them across northern europe. >> host: that compares the hong kong and singapore. to either greece or sweden. hong kong and singapore by the global standards of the industrialized nations have very small government, less than 20% of gdp whereas you have about 40% of gdp in america where you had the state and local government and sweden well over 50% consumed by the government. >> guest: i can i talk about this in the book. it is the case of singapore. this is again these discussions

and decisions that the society has to make a letter to flee. there are things that go on and singapore that americans might say absolutely not we don't want to have that and i will give you an example in the look. the government has a dating agency where it actually helps educated, quality college educated people so in the hope of producing -- >> host: >> guest: it is the version of match.com. if you think about it, that is maybe infringing on personal rights. but the government says we aren't putting a gun to anybody's head and saying you have to be together but we arepg creating apgnpo environment whee our educated population meetpopo each other and produce childreno who are more likely to go to school and so on.pgpopopgpopo and talking about how data theqg government pgshould be that is g they might have a government ing terms of the fastest in the

social policy a lot of people would call it that and it is unacceptable. >> host: i think boys have been meeting rules for a millennium, and somehow i don't think singapore needs to be felt. the to go back to europe because a few minutes ago you were talking about how europe -- and this is like the twilight zone aspect of this come in europe is being much more conservative fiscally in terms of not going with the keynesian spending packages like germany and the big countries that do it. they are not going with the kinsey in monetary policy as the low interest rates. where it is in the u.s. is likely have completely split. the u.s. used to be more free-market oriented, but we are the ones who beat the so-called stimulus and quality defeasing and the europeans are the ones being more frugal. what happened? >> guest: this is a big question and i think we will have to see who wins next year. my personal preference is if you can't afford it, but that you're

in expenditure especially if you have issues around revenue, raising revenue. people look around the united states and i've seen a number of papers that are to 45% of americans don't even pay federal taxes already. so this is an unsustainable situation. the prices of the inflation and where the oil is right now, those types of pressures are going to mean something has to give, and the less prepared the policy is in the united states in terms of having to, you know, tighten the belt, the more vulnerable the country is going to be to the outcome and places like greece. we don't know what's going to happen in europe. i will take britain as an example. they had a really bad quarter of gdp at the end of last year, 2010, and a lot of people who believe in the keynesian economics said that is exactly what we expected. serious problems on the horizon and the of the inflation prices because and prices have gone up.

the government decided they don't believe that a decline in gdp was an aberration and they are absolutely going to focus on this idea that we do need to tighten our belts and adis sanibel to have the massive government and the productivity decline which you have seen significantly in britain. who wins that? i hope i live long enough to see. i have ideas i think it is not sustainable to have the massive debt and deficits. the only way that the work is if somebody is willing to lend to do and the united states as we know as we lie heavily on china as a lender, if china decides tomorrow that they don't want the united states we will have an impact and there may be other pensions in america to by the government debt or whatever. but publicly there is something wrong with looking beyond your means, and i think the united states, particularly using the money borrowed for consumption and other investments we talked about we have to come to terms with that.

>> host: as bad as the u.s. fiscal forecast is it's based on lower interest rates and if interest rates go back up to traditional levels especially if you start getting inflation and that is the premium for inflation built into the interest rate the fiscal numbers go to hell in a hand basket. >> guest: you can't expect them to go up the basis points without something having to give, and the thing is as i said earlier my books appeal to the rational thinking. people understand these concept said very clearly when they look at their own household income. they understand what it means when one member of the family or with members of the family -- the parents are out of work. that's what unemployment means. the understand what increases in the inflation, what that might mean for the price increases might mean for their consumption basket. the absolutely understand what the interest rate increases mean

for their burdens. so it's essentially the same thing and the vulnerability of the united states isn't that she has borrowed per say. the former police first of all cash to pay the interest back, but second of all will people continue to be willing to lend to the united states, and at this point they got away with it, but we have to wait and see what happens. >> host: if you are china and this is the optimistic story people tell me, and sometimes i believe it and sometimes i don't. if you are china and you have this portfolio of the u.s. government securities why would he want to pull the rug out of the united states because you hurt yourself? it's the old joke if you owe the bank $1,000 it is your problem if you owe the bank a billion dollars it's the banks' problem. >> guest: a number of things going on. china right now lending to other countries as we know quite significantly to other countries around the world. nothing says the chinese government says to the united states you know what? we aren't going to give you short-term money anymore. we are willing now to give you

long-term money but we want to take on a bigger role in providing infrastructure in the united states. at some point these symbiotic relationships we lend you money and you get something in return in the united states, access to consumers, they have the vulnerability. if one person decides i will take a hit on the chin. the chinese could decide to offer their portfolios towards the year and they are significantly moving into the markets based on the systems they do have, there are about a billion dollars a day just in the interest. that money being deployed in many of the different class is so door might be in the short term and they do feel they have got the upper hand. but over the long term, i mean, there's nothing that says china can't get higher returns. a lot says they can't get a lawyer returns elsewhere than taking a big hit on the united states. >> host: what do you think about the assertion that china is artificially keeping its value of its currency low for trade purposes?

>> guest: i think that is a fait accompli in the sense that most people acknowledge that traditionally china's exchanges has been artificially manipulate there's a few things happening that suggest they get it. first of all, but domestic demand which is a move away from this idea that the group is in trade dependence. last year not just china, india and brazil had 10% of the domestic demand increases vary significantly focus on that. the other thing they've done is in october of last year and in 2010 the chinese government put out a five-year plan every five years which and please of the government is planning to do. the government is focused on the social programs in china to encourage people domestic and the consumer goods and away from underwriting education health care and things like that.

there's much more focus on people starting to spend. when you think about where china is today she's got some serious problems. it's not a sort of closed of story that china is going to win. we don't know on a per capita income basis if she can encourage to the u.s. level. she has a lot of structural problems are now resource allocations and a billion people that are really indigent and incredibly poor so she has got a lot of issues, but i think that to point things out to china about the artificial manipulation of the exchange rate. and protectionism. it's kind of farcical because the united states and the european countries are among the biggest leaders and biggest protections country where the culture is concerned. and again as an african i find it quite interesting whenever i'm in china and i hear americans fighting their finger at the chinese need to let your exchange rate move fair.

will america doesn't say fair respect to the agriculture nor did the europeans policy. when you say something about the fact to say one thing and do something completely different, i believe in free trade. i think it is a great way to raise people's living standards and i'm very sensitive of the fact many have lost their jobs and the livelihoods' have been decimated because of these programs in the u.s. and europe over many decades. the fact of the matter they are part and parcel of this protectionist game and its -- and undermines the ability to force other countries to be less protected if you are doing the same thing. >> host: it's kind of hard to throw rocks -- >> guest: exactly. [laughter] >> host: let me go back to the u.s. and europe. a couple of years ago, you were sort of suggesting china would begin to move out of the dollar into the hero. a couple of years ago i was very high on the euro because it seemed like the central bank was just more prudent.

the fed one mandate price stability versus the semi keynesian mandate of the fed to try to manipulate the short term economic conditions. but then for the european central bank, the basic he sacrificed a lot of its independence and it's doing the bidding of the european politicians by doing these backdoor bailouts. by dalia in portuguese government debt and irish government debt it's almost like the fed bought in at all of the fannie and freddie debt what is your take on where that is going to lead? >> guest: as a hedge fund put the best and said you know, when you are treating the market's what sort of key driver are you on the decision making. whenever i have to deal with policy makers i always get to myself what is it, don't focus on what they should do focus on what they're going to do. but the politics rain. so economists might take a look and say i don't want you to be kinsey in, it's wrong to intervene and for you to do

certain things in the markets to artificially make the market more attractive than they are and to keep the interest rates low and guarantees and all that. but the fact of the matter is what they're actually going to do, and i would completely concur with my friend and i think that he's right that it is always going to be the case the bailouts are going to happen. one thing the zero blew up as a political exercise is important and as an economic exercise not as important a lot of skeptics even before the hero can into being. but now that we are in at and general mcchyrstal to paraphrase we should focus on where we are and not where we would like to be. when you were in a financial crisis, all of your sort of price stability goals may actually not be to sort of stock so you have to loosen up a bit and do other things. it's a classic example of that. people ask all the time we think

that the order was going to fall apart? if i were an economist i would think there are lots of reasons as an economist that it should break up because they are not in the same path and so on. but as somebody that looks at politics and economics, i would say it is unlikely because politics will always supercede. >> host: there seems to be a secular religion in europe to have european centralization and the hero is part of that. all of the peripheral countries to keep the year-ago alive. >> host: let me go to china and some of the things i will disagree with and you are mentioning some of these in the books. china has rapid growth for a couple of decades but still if you compare their per capita gdp income and the u.s. per-capita income it seems like there's a big gap and may be 2007 this figure in the book for how many decades we in the future it would take for china to catch up

with us in terms of the living standards and that assumes china doesn't have a bubble, that china doesn't have any economic mismanagement. there's a lot of concern about china's's financial system being very long transparent and shaking. so yes china has improved dramatically and that is great hundreds of millions out of poverty, but they are a threat in any sense? is it bad if your neighbors become rich? >> guest: you remember in my introductory remarks i said precisely it's not how china, it is how the west would look. there is a succession of look at what china is doing and we should commend them. they are poor another country's 30 or 40 years ago and now the number two largest country in the gdp basis in the united states. but you're absolutely right, this is a poor country. it's number 99 on a per-capita income. it's the serious issue and

education and all the stuff we talked about already. and it is a long way to go. in the short term, tactically of issues around the property level we've talked about a moment ago serious issues around how they are going to actually bounce back from a financial crisis as it is linked to the united states vary considerably in exporting the goods and so on and so forth. but again as i said a moment ago they are much longer term. the rollout of infrastructure, how do you move a billion people out of poverty? no country has ever done that. so it isn't going to be the straight line over time and the overlay of that is the whole idea of the political environment and i think that it's not a unforeseeable that at some point at some level there might be more pressure for them to have political instability or demand for the middle class. but i think if you put all of this aside, is china going to keep growing? i would say absolutely yes.

the capitol productivity is china going to grow faster than the united states? i think it will because again, these factors are leaning in favor of china, and again, the united states but that's natural because the united states is much more. >> host: this convergent. >> guest: of course. the question is can china converge to american levels of per capita income. we don't know. we don't even know if it is possible because we have the resources in the country. already we are continuing 85 million barrels of oil a day on the planet, and the fact of the matter is the oil we are consuming today is largely oil discovered in the 1950's and 60's. constraints around the land that china has about seven to 10% and 1.3 billion. issues are not water, look at some of the numbers coming out of the middle east in terms of the nation not working as well as we had hoped, concerns about water, issues are not energy but also around minerals.

so can china converge? we don't know and that is where again united states and european countries have to get it right. we have to focus on these issues otherwise we know what happens when the constraints are alive and well and it tends to end up in conflict. >> host: so you are not sitting in your book the west is being lost because of china you are saying it's been lost because of homegrown mistakes as an example of the country and also you have a lot of discussions in india as countries that aren't engaged in the overconsumption short-term political -- >> guest: that's right. the classified as 50 years of economic folly of the choices ahead. america does have storch this is to make and we need to focus on these choices so it can remain the preeminent economy. as an analogy, somebody said to me it's a sort of like the green bay packers. your number one, you in the super bowl. but in order to stay there and focus on your own team dynamics and make sure they are the best they can be if you focus on the

dotted snapping on your heels that number to you get focused on building and get relegated. that is the message for the united states. the problem you have right now in education and the budget, china plays a role in tangentially but it isn't a core issue with respect to infrastructure. it's about what america is doing wrong. solve those and you will remain competitive. if we don't solve the problems it doesn't matter. china might do relatively bad things were wrong things but she is on the right track and the united states is on the wrong track. >> host: it's like the joke these two guys are out camping and a buyer comes over and one guy starts putting on his sneakers and the other says you can't outrun the air. he says i only have to outrun you. [laughter] >> guest: exactly. >> host: i am sure you have heard the theory that china will get old before it gets rich. in other words like we have the

demographic problems in the u.s. with our social security system in medicare and medicaid, china especially i guess the one child policy, they are going to have this chilling and version of the baby boom generation retiring and not nearly as many workers coming along to replace it. now they don't have the kind of western style of social welfare state, but you find out in your book that they might be moving in that direction. so, -- >> guest: if you compare china and india which is comparable in many ways, india's demographic is much more favorable in the midterm. i think the chinese government has made a very deliberate choice to focus on the one child policy because they were concerned about how we are going to move a billion people if the population growth continues to be much bigger than the billion people we would have to take care of were certainly provide for the economic sense. so you're right this is one of the things to focus on.

and i always say when it comes to the chinese government if we're sticking around talking about the doherty thought about it. they are already thinking about it. they are not imposing the one child policy because the children, it is clearly because they are trying to get as many people off the economic ladder as possible in the shortest amount of time, and that unfortunately means with the large population they do have some issues around keeping the population stable. could it hurt them in the long-term? we talked about singapore and this idea of the government getting involved in the eugenics, the government is getting involved in the population dynamic and the chinese are very, very aware of the invitations over the long term. but it's one of the policy trade-offs. what can we do now to help people become more economically independent or to have a better likelihood and is there a tree on the fact people have to have

fewer children. it's a debate. >> host: lit secure off into the aspect of the one child policy. apparently there is a mismatch@p between the number of boys and girls in china and certain coleworts. @0lot of the social science@0 stuff that i just read casually0 not going to pretend to be an expert on says if you basically have lots of young man with nothing productive to do that is a recipe for social turmoil. >> guest: middle east class example of this. >> host: this china faced challenges? if you have i don't know whether it is 20 million or 50 million but if you have a young man with no way to channel their energy in a productive way is that a recipe for bad things? >> guest: i think as i said, the middle east is a classic example of this. you have a large proportion of young people, a lot of young men in particular who are disaffected, unemployed, don't have a long-term prospect for the future what you end up with is what we see now. i very much believe what we are

seeing beyond egypt in this country that is really on the section of the inability for the government to deliver improvements in living standards, too much poverty, too many people disaffected, and i think wherever it is if you have a large population of people, who are -- who do not feel they are able to capitalize and get involved in the economy or don't have the best interest in the economy will end up in the political instability. one of my concerns why i wrote about africa in my last book there's a million people on the continent, 60% of 24. you've got to get it right and make sure these young people have job opportunities and the entrepreneur is and get the incentives right so that they don't end up at 25, 35 disaffected and see what is going on. and it is particularly stark when you have a government that has been corrupt. and i think that is where you see the great attention. i would argue that where it is around the world without beingpo able to deliver the economic growth and meaningfully reduce